Orion fall linked to $20m loss on trades

At the centre of Orion Holding's collapse was US$20 million worth of allegedly "unauthorised" transactions, according to legal documents and interviews.

DUBAI // The collapse of Orion Holding Overseas, the Dubai financial trading firm forced into liquidation this month, was allegedly linked to unauthorised trades in gold and other commodities contracts that led to losses of at least US$20 million (Dh73.4m), The National can reveal.

The trades were detailed in court hearings related to Orion Holding's liquidation, which closed in the Dubai International Financial Centre courts on January 13. Justice Sir John Chadwick ordered the company to be wound up after shareholders failed to come to an agreement to liquidate the company voluntarily. The order marked the end of a swift transformation of Orion from a trading business valued at more than Dh1bn, with more than 350 employees, into a mere shell of a company with offices littered with vacant desks and dying plants.

Orion Holding's financial decline has led to serious losses for Shuaa Capital, the UAE's largest investment bank. Shuaa bought a 20 per cent stake in the company in February 2008 for Dh193m, a statement announcing the deal said. The deal gave Shuaa representation on the board of directors. It is not clear who made the unauthorised transactions at Orion, or how many there were, but the existence of a series of trades that resulted in substantial losses and ultimately sparked the company's downfall was referred to in Orion's liquidation hearings.

Kaashif Basit, the lawyer representing Orion, said during a liquidation hearing: "The company has had a chequered history - Although it was initially profitable it suffered trade losses that led to a blame game among shareholders." These resulted in a "paralysis of day-to-day business", Mr Basit added. Mohammed Abu al Haj, the founder of Orion and its largest shareholder, said the trades were made by people within the company.

"The management was trading with the company's money," Mr al Haj said.

"More than $20m was lost. They lost a lot on the [Dubai Gold and Commodities Exchange] and oil and all that without proper risk management." Sources close to the company say the transactions were placed in the summer of 2008 against the price of commodities such as gold and oil, which were then rising quickly.

Sami Boujelben, Orion's chief compliance officer, is understood to have filed a report to the board of directors in July of 2008 describing the losses and saying that risk management protocols had not been followed, several sources at the company said. It is not known if the Orion board was shown such a report. Mr al Haj resigned as the chairman of the board in August 2008 in what he described as a protest over the board's decision not to respond to the report.

Orion's shareholders include Petra Invest of Jordan, which owns 32 per cent of the company, Primavera Holdings, MHK Investments, AJ Capital, Shihab Khalil and Shuaa Capital. Shuaa Capital declined to comment about the transactions but said the company had no involvement in the day-to-day management of Orion. The Orion deal was part of Shuaa's aggressive expansion strategy in the region but ultimately led to the company having to restructure and change its focus, said Dheeraj Lakhwani, an analyst at the Abu Dhabi brokerage Prime Emirates.

"Orion had access to a lot of brokerage markets in the region," Mr Lakhwani said. "It was an attempt to move into more markets, but it turned out to be a big loss." Shuaa has written off its entire investment in Orion Holding, which was a major factor in last year's third-quarter losses of Dh269.8m. Shuaa's share price has declined by 75.4 per cent to Dh1.27 since it made the investment in Orion. Mr Lakhwani said the reversal of fortunes at Orion and other bad investments led to a management shake-up at Shuaa and a broad refocusing of its business away from financial investments.

"We will see Shuaa reduce in size even more in 2010," he said. "They are now trying to grow fee-based businesses and get out of investments. We won't see growth again until 2011." @Email:[e-mail] [e-mail]